Title: Chinese companies going global: Operational strategies and communication challenges
1Chinese companies going global Operational
strategies and communication challenges
- May H. Gao, Ph.D.
- Department of Communication
- Kennesaw State University
- Metro Atlanta, GA
- mgao_at_kennesaw.edu
2Presentation Summary
- Current situation
- Supporting structure
- Government policy Financial support
- Reasons for going global
- Operational strategies
- Communication challenges
3From FDI to ODI
- China has been the destination for growth in the
past 25 years. - China has experienced a 36 increase in Fortune
500 representation. - China has the worlds 4th economy now, after
U.S., EU, and Japan.
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5Operational strategies
- Chinese MNCs establishing overseas production
bases - Acquiring global mergers and acquisitions
- Building up global brand names invested in
technology and efficiency - Accumulating overseas capital from global stock
markets - Practicing Wenzhou style snowball model
distribution
6Some eyecatching deals
- In December 2004, Lenovo acquired IBM PC branch
with 1.5 billion dollars - China Mobile Communications Corp is near a
5.3billion pact to acquire Millicom
International Cellular SA of Luxumbourg, which
operates in many of the world poor nations.
7Going global comparison
- Similar to Japan in 1980s and Korea in 1990s, the
Chinese companies are in a transformation from
labor-intensive to high value added operation. - But the domestic Chinese market is already very
open and mature. - Hi-tech companies are going global pioneers.
8Case studies
9Lenovo, a rising computer star
- Lenovos global headquarters are in Purchase, NY.
- Its principal locations are in Beijing, China and
Raleigh, NC. - The company employs more than 19,000 people
worldwide. - Lenovo was founded in 1984 by 11 Chinese
scientists with RMB200,000 (US25,000) in seed
money. - It was originally named as Legend, then changed
to Lenovo in 2003. - In May 2005, it generates a 13billion annual
revenue, only after Dell and HP. - It is global For example, its Senior VP and
chief marketing office was born in India,
educated in the U.S., and now works for a Chinese
company.
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11Huaweis global transformation
- Customer-centered, innovation-driven
- In 2003, Huawei settle in court with Cisco
Systems for patent issues - Huawei strives to sell products with its own
brandname - Huawei employs global consulting firms for
marketing and branding strategies - Huawei copies its Chinese Guanxi strategies to
the global market - Think global, act local The Thai Color ringing
and gambling signals on Huawei cell phones
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13Haier, Made on Earth
- On April 30, 1999, Haier established its American
production base in South Carolina. In March 2003,
the first Made in USA Haier refrigerator was
assembled. - Haier has production bases in China, Pakistan,
Bangladesh, Indonesia, the Philippines, Malaysia,
Iran, etc. - They make refrigerator, washing machine, dish
washers, computers, laptops and cell phones. - Haier owns 35 share of the 200- liter American
market. Its 5 kg- small washing machine stands as
No 2 in Japan. - Innovation in technology is a key strategy. Haier
owns a total of 5,469 patents, of which 618 are
innovation patents. - In 2004 alone, Haier applied for 695 patents, 2.7
patents per day. - Haier treats customers as teachers. (The French
and Pakistan examples.)
14More on Haier
- Haier has 62 distributors and more than 30,000
outlets around the world - In the U.S., Haier products are sold in Wal-Mart,
Best Buy, Home Depot, Office Depot and Target
15Chinese governmental support
- WTO entry since Jan. 1, 2005
- The anxiety for Foreign wolfs coming to China
- Going global became a national policy in 10th
Five year plan for 2001-2005 - The government provides support for 50 Chinese
companies to be listed on the fortune 500 before
2010. - A move from defense to offence in marketing
and competition after Chinas accession to WTO.
16Specific support policies
- Eased loan procedures
- Bank conglomeration supports going global
companies (for example, Jingdongfang got 740
million from 9-bank group.) - The appreciation of Chinese currency (from 8.3 in
2005 to 7.9 in 2006) - Chinese currency developing toward hard currency
17Various forms of going global
- Export and import
- Listing on global stock markets
- H-share (listed in Hong Kong, New York, London,
and Singapore) - Searching for resources, e.g. oil, iron, other
metals - Bidding for overseas projects (construction,
mining, highway and railways)
18Some statistics
- Till May 2004, there are 7720 Chinese companies
registered abroad, totally 33billion dollars in
investment. - They are in 160 countries.
- Just from Jan to May 2004, there are 250
companies going global, with 767 million in
investment, up 65.56 and 40.62. - Half of total investment is in Hong Kong and
Macao, next would be North America, Oceania and
Europe. The first 10 destination countries
absorbs 80 of Chinese ODI. - Most investment takes the form of joint ventures,
M A, etc. - The focus of investment is in resource industry,
and consumer products (including home electronic
appliances). - Small and medium companies account for 70 of the
outward investments.
19Three dialectics before going global
- 1. Establishing manufacturing base in China or
abroad - 2. Executing marketing by self or others
- 3. Going with own brand or other brand
- Some scholars are against production abroad.
- Haire has factories in the U.S., Glanze only in
China, but TCL produces also in Pakistan
20Global distribution of global Chinese operation
- Highly competitive companies enter European,
Japanese and North American markets. - Small and medium companies start with emerging
markets in Russia, Eastern Europe, Southeast
Asia, Australia, Latin America, and Africa. - Asia is the top destination of Chinese ODI.
21Reasons for the going global policy
- Outstanding bank savings in both RMB and USD.
- Since 1994, savings total exceeds loans total in
Chinese banks. In 2001, savings in banks exceeds
loans by 3,200 billions RMB Foreign currency
reserve exceeds loans by 50 billions dollars.
(Of course loan policy for Chinese companies are
not smooth.) - Labor costs in China will continue to rise 30 to
50 in the next 3-5 years. - Many Chinese companies accumulated global
operational experience. - Some companies want to avoid fierce domestic
competition in China. - A strong Chinese economy
22Purpose of going global
- Market expansion
- Resource seeking
- Securing strategic assets (technology,
management, human resource)
23Mergers and Acquisitions
- In Jan 2003, Jingdongfang Group bought out the
Korean Hynix and kept its 1700 Korean employees,
with 380million to product Type V TFT screen - In 2004, Chinas zinc and copper producer China
Minmetals negotiated a deal of 5.5 billion to
take over Noranda, Canadas binnest mining
company. - In 2004, TCL claimed a 55 stake in a 100 million
euro joint venture with French telecommunications
giant Alcatel.
24Communication challenges
- Chinese companies inefficient conflict
management style, - Low proficiency in understanding local cultures,
- Lack of 24/7 service communication with the
customers
25Inefficient cultural localization
- It is not easy to overcome barriers of language,
corporation cultural difference, national
cultural difference, and hiring habits after M
As. - Teams of multinational employees working together
now in Chinese companies - M A causes core talents departure
26Insufficient understanding of cultures
- The most serious problem facing Chinese companies
is a lack of international experience and weak
marketing and management structures, including
communication skills. - This is why Lenovo let IBM managers to stay after
the acquisition.
27Perception and marketing
- Chinese brands suffer from negative perceptions,
and perhaps, negative realities. Reported by
brand consulting firm Interbrand. - Current perception of Chinese brands cheap, poor
value, low quality, produced by communists.
28Wenzhou shoes tragedy
- The China-made shoes got burned in Spain because
of perception of Chinese companies unfair
competition. - Wenzhou merchants do not understand local customs
are not motivated to adapt in terms of
linguistic, time and space concepts.
29Ineffective conflict management style
- The Nanfu vs. Duracell case
- Cultural tariff is a deeper tariff than trade
tariff. - Chinese companies need to take on more social
responsibilities in local societies. (the India
iron mine case) - The best policy of adaptation is to transform
from going global to Going local
30Interpretive and Critical Approaches to Social
Conflict
- Conflict is deeply rooted in cultural differences
in the context of social, economic, and
historical conflict.
31Face and Conflict
- Ting-Toomey (1991) suggests that the direct and
indirect styles of communication for conflict
management are based on different cultural values
for identity and face saving. -
-
32Gree Case in Brazil
- Gree Electronics has a production base in Brazil
and aims to bring the Gree Chinese culture into
Brazil. The workers feel being deprived of human
right under Chinese management.
33Political factor
- Resentment against Chinese companies, perceiving
them as being government controlled (Lenovo vs.
Dell) - China National Offshore Oil Corporation (CNOOC)
losts its deal to Chevron in its Unocal bid in
2005. - The Chinese companies are not taking over the
world, their investment value is only a fraction
of the worlds total.
34Conclusion
- Being the worlds low-cost factory floor is no
longer the countrys singular ambition. - Chinese entrepreneurs are asking Should China
buy Wal-mart? - It is an opportunity for all.